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With oil surging over $100 per barrel, these small cap energy stocks have seen huge rallies. The energy stocks below have recently hit new 52 week highs. In my opinion, the unreasonable valuations and huge upward moves indicate signs of a speculative blow off top in some of these names. It's very possible that oil prices, and these stocks, have run far ahead of the fundamentals. Some investors are looking towards a protest on Friday, in Saudi Arabia called a "Day of Rage" as another catalyst for oil to rally. Some are also looking at the continued violence in Libya.
While things in the Middle East could easily get worse before they get better, these events might turn out to be paper tigers. If Gaddafi is forced out of power soon, and the "Day of Rage" in Saudi Arabia fizzles out, many of these energy stocks, (along with oil) could give back much of their recent advances. While some of them might only drop about 10% or so, others could lose 50% or more if the oil rally fades.
I think it makes sense to take profits on some of these shares after an incredible run. In particular, I am looking at the market caps and the high Relative Strength Index (RSI) levels which can indicate overbought conditions. Stocks with an RSI rating of about 70 can signal that the shares are overbought and due for a pull back.
Here are the seven stocks:
Kodiak Oil and Gas Corp. (NYSE:KOG) hit a new 52 week high recently at $7.70. These shares have risen from a 52 week low of $2.43. The 50 day moving average is $6.39 and the 200 day moving average is $4.42. Yahoo Finance lists the market cap for KOG to be about $1.1 billion. Compared to the market cap, revenues are minimal and insiders have been selling shares.
Samson Oil and Gas Corp. (NYSEMKT:SSN) hit a new 52 week high recently at $4.75. The relative strength index is about 72, which indicates shares are at overbought levels. These shares have risen from a 52 week low of about 37 cents to nearly $5! The 50 day moving average is $2.39 and the 200 day moving average is $1.42. SSN has reported revenues of less than $6 million for the fiscal year ended June 30, 2010. With these shares extended well past their 50 and 200 day moving averages, I would not be surprised to see a pullback to the $2s when the party is over.
Abraxas Petroleum Corporation (NASDAQ:AXAS) hit a new 52 week high Tuesday at $6.16. These shares have risen from a 52 week low of $1.85 to over $6. The 50 day moving average is $4.79 and the 200 day moving average is $3.50. Yahoo Finance shows a market cap of about $456 million and annual revenues of about $61 million.
Royal Energy, Inc. (NASDAQ:ROYL) hit a new 52 week high recently at $7.90. The relative strength index is about 68, which indicates shares are at overbought levels. These shares have risen from a 52 week low of about $1.76 to nearly $8! The 50 day moving average is $3.08 and the 200 day moving average is $2.34. With these shares extended well past their 50 and 200 day moving averages, I would not be surprised to see a pullback to the $2s when the party ends.
Blue Dolphin Energy Co., (OTCQX:BDCO) hit a new 52 week high recently at $9.09. The relative strength index is about 66, which indicates shares are at overbought levels. These shares have risen from a 52 week low of about 19 cents to over $9. The 50 day moving average is $3.40 and the 200 day moving average is $2.40. With these shares extended well past their 50 and 200 day moving averages, I would not be surprised to see these shares pullback significantly.
Delta Petroleum Corp., (DPTR) trades for $1.15. The relative strength index is about 66, indicating that shares are at overbought levels. The 50 day moving average is 81 cents and the 200 day moving average is 82 cents. With these shares extended well past their 50 and 200 day moving averages, I would not be surprised to see shares pull back 10% to 15%.

Lucas Energy, Inc., (NYSEMKT:LEI) recently hit a new 52 week high at $5.23. The relative strength index is over 67, which indicates shares are at overbought levels. The 50 day moving average is $2.40 and the 200 day moving average is $2.11. With these shares extended well past their 50 and 200 day averages, a large pullback is likely.
The data is sourced from Yahoo Finance. The information and data is believed to be accurate, but no guarantees or representations are made.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Source: 7 Energy Stocks That Could Drop Significantly if Oil Rally Fades